Returns on bank wealth management products have continued to fall since the start of the new year, with analysts expecting the Chinese central bank’s latest cut to the required reserve ratio to place put them under greater pressure.
In the first week of 2019 the People’s Bank of China (PBOC) announced a reduction in the required reserve ratio for financial institutions of one percentage point, comprised of two 0.5 percentage point cuts scheduled for 15 January and 25 January.
PBOC said that the move will unleash around 1.5 trillion yuan in funds, which given its decision to refrain from rolling over medium-term lending facilities in the first quarter will lead to the net extension of approximately 800 billion yuan in long-term funds.
Domestic analysts say that the move will serve to loosen liquidity and put greater pressure on returns for bank wealth management products (WMP’s) as well as money market funds.
Rong360 analyst Liu Yin (刘银) said to Securities Daily that since the start of the new year the tightest period for funds has already passed, with SHIBOR readings as well as Chinese treasury repo rates all falling significantly.
Given the trend of loosening liquidity, Liu forecasts further modest declines in WMP returns this month, especially following PBOC’s reserve ratio cut.
Data from Rong360 indicates that returns on bank WMP’s have already come under pressure since the turn of 2019.
The week from 28 December 2018 to 3 January 2019 saw the issuance of 1821 bank WMP’s for a decline of 671 compared to the previous week, while the average return was 4.40%, for a drop of two percentage points compared to the preceding week.